A portrait of the South African beer industry
With a population of more than 58 million, South Africa is the richest country
and largest beer producer and consumer on the African continent. But the South African beer industry’s growth has been muted for the last few years on account of sluggish economic growth. Yet, the country remains one of the most interesting global beer markets with a strong dominance of two major players.
Accounting for 1.8 percent of total global beer consumption, South Africa is the world’s 12th largest beer consuming nation. In 2018, the country consumed a total of 34.47 million hectoliters (hl) of beer, registering a growth of 2.4 percent over the previous year (33.22 million hl). In 2017, beer consumption grew by 5.6 percent over the consumption figures of the year 2016. As mentioned, the country is the largest beer producer and consumer on the African continent. It accounts for more than 30 percent of the formal African beer market.
AB InBev through its subsidiary, South African Breweries (SAB), accounts for nearly 88 percent of the beer market by volume. For more than a century, beer-making in South Africa has been dominated by SAB. AB InBev, the world’s largest beer producer, became the dominant brewer in South Africa when it purchased SABMiller in 2016 in one of the largest mergers of beer industry. Since the take-over, AB InBev has overhauled its portfolio and increased distribution of non-SAB brands such as Budweiser and Corona. Lion Lager and Castle Lager, both produced by SAB, are the most popular mass-produced beer brands in the country.
Craft beer first began its South in the Western Cape. The industry remained fairly small until the early 2000s when more and more of these businesses began appearing. However, the production and market value was still scattered. It wasn’t until around five years ago that craft beer began gaining more traction amongst South Africans. Now, there are around 220 craft breweries in South Africa, according to the Craft Brewers Association South Africa (CBASA). This number still only makes up about a one percent share of the entire beer industry in South Africa.
Beer remains the most popular alcoholic drink in South Africa, accounting for 56 percent of the alcohol consumed in the country. Wine and spirits consumption stands joint second with consumption of 18 percent each, while other categories account for the remaining 8 percent share of the alcohol consumption.
South African beer market dominated by SAB
South African Breweries is South Africa’s largest brewer and one of the nation’s most admired companies. A subsidiary of world’s largest brewer AB InBev since 2016, the company operates seven breweries and 42 depots in South Africa with an annual brewing capacity of 3.1 billion liters. Its portfolio of beer brands meets the needs of a wide range of consumers and includes brands rich in heritage such as Castle Lager, Hansa Pilsener and Carling Black Label.
In 2016, Anheuser-Busch InBev acquired the entire SABMiller Company which then became a business division of Anheuser-Busch InBev SA/NV and ceased trading on the worldwide stock markets.
SAB was founded in 1895 as Castle Brewery to serve a growing market of miners and prospectors in and around Johannesburg. Two years later, it became the first industrial company to list on the Johannesburg Stock Exchange and the year after (1898) it listed on the London Stock Exchange. In 1950, SAB relocated its headquarters and control from London to South Africa. In 1955, Castle Brewing purchased the Ohlsson’s and Chandlers Union breweries, and the group was renamed South African Breweries.
Within South Africa, SAB distributes beer through its extensive network, augmented by a fleet of independent truck drivers (called owner-drivers) comprising mainly former employees, many of whom had received help from the group to start their own businesses. SAB has invested billions of rands in this owner-driver project since inception.
Heineken South Africa
Heineken has been operating a brewery in Sedibeng outside Johannesburg since 2010. This brewery has an installed capacity of 5.3 million hectoliters. Heineken does not provide exact numbers for each of the countries it operates in, but in the Dutch parent company’s financial results South Africa featured among the top performers. The flagship Heineken brand grew by double digits in South Africa, it said, while Amstel “grew strongly.” Its cider business, which is headlined by Strongbow Apple Ciders, likewise reported strong growth in South Africa. South Africa contributes about 3 percent to global production of Heineken, and beverages brewed at Sedibeng are exported to regional countries such as Namibia and Botswana.
Heineken has also expanded its South African beer portfolio with the addition of low- and no-alcohol brands including Heineken 0.0, Windhoek Lite, Amstel Radler.
In 2019, Heineken South Africa embarked on a Euro 60m (R952m) expansion of its brewery in a bid to ramp up capacity to meet the growing domestic demand for premium beer. Construction is underway at the brewery in Sedibeng, which is the largest outside Europe, will see it grow production from 5.3 million hectoliters to 7.5 million hectoliters a year by the end of 2020.
Low competition
Several international brewers, such as the UK’s Whitbread, had tried to enter the South African beer market, all had thus far failed to gain significant market share. From time to time, new startups also tried to challenge SAB’s monopoly, but these have either gone out of business, or been acquired by SAB. A case in point was National Sorghum Breweries (NSB), founded in 1990, and the first new player in the beer industry in more than ten years. “SAB’s supremacy is under threat,” observers said, and some thought that within a few years NSB could achieve 10 percent market share. Instead, the company ran into financial difficulties and failed to gain any significant share of the market.
This does not mean that SAB’s position could never be threatened. In 2004, a new company was established in South Africa known as Brandhouse through a joint venture of Diageo, Heineken and Namibian Breweries. Brandhouse started marketing, selling and distributing some of the world’s top premium brands such as Heineken and Windhoek and in March 2007, the 40-year agreement between SABMiller plc and Heineken N.V. which allowed SAB Ltd to brew and distribute Amstel Lager in South Africa, was terminated, sparking a new era of competition for the industry.
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